Industry News

The simultaneous development by three separate companies of commercially viable domestic stirling heat engines appears on the face of it to be just commercial competition spurring technological development; capitalism at its best, one might say. But the fact from an environmental point of view, that these are all potentially game changing domestic appliances, makes them that much more interesting. The stirling engine first patented in 1816 by Reverend Robert Stirling (in the style of the day) who was both a clergyman and an inventor. Born in 1790 and after studying to be an engineer at Glasgow University, he became a clergyman in Kilmarnock, Scotland. 200 years later and the world is still trying to bring his invention of using expanding and cooling gases to drive a rotating coil and hence generate electricity to some form of widespread commercial application.

This sounds like a green or environmental technology story, and would in itself make interesting reading as such, but our interest is more in the way the three competing companies went about developing their manufacturing philosophy. As a Financial Times article explains, the rival production methods are test cases for the differing approaches towards global manufacturing networks being tried out in fields as diverse as cars and computers.

One company is owned by a New Zealand firm, but manufactures close to its European market from a single factory in Spain. Another is a British engineering firm that carries out R&D in the UK, but off-shores a crucial production element to low-cost China. Meanwhile the third, based in the Netherlands, also outsources manufacturing, but this time to high-tech Japan.

Whisper Tech of New Zealand has partnered with a manufacturing group in Spain because they feel manufacturing a new technology product close to the market in which it is being used will reduce risk and increase early acceptance. They don’t mention labor rates in Spain or the possibility of EU funding for underdeveloped regions, but these may also have been a factor. Their product has reached commercial launch and is being promoted for both the more obvious off-grid applications but also for on-grid, no doubt exploiting European feed-in tariffs that allow users to claim back electricity returned to the grid at highly favorable rates.

Microgen, the British-based firm, has produced a solely domestic heating and power generation appliance but with certain key components they don’t say which, or how large a percentage of the finished product made in China. Recognizing that cost could be a significant hurdle to widespread adoption, Baxi, Microgen’s parent, said “We think that our use of the lower costs that China promises should give us the ability to bring down prices and make the products more affordable.

The third contender Enatec micro-cogen also makes a single piston stirling engine, but instead of looking to produce close to its European customer base or access low-cost Chinese manufacturing sources, the firm has sought to overcome the technological and development hurdles by partnering with a US firm Infinia, the engine designer, and a high tech Japanese firm Rinnai for manufacturing, believing technical excellence will give them the edge in what is still an evolving technology.

It is too early to tell which of these firms’ approach will prove in the long run to be the most savvy. Figures are not available for like-for-like comparisons of sales as all firms produce a number of products of which the stirling engines are but one. Nevertheless, as manufacturers in the post-crisis world re-assess the viability of the pre-crisis “move all manufacturing to China model struggle with lower volumes, or ponder the effect of a gradually strengthening Chinese currency, the different approaches of these three firms may strike a cord. If anything good has come out of the financial crisis, it is the return of some manufacturing activities back closer to the markets in which the products are being used. As these firms’ decisions show, cost is not always the sole arbiter.

–Stuart Burns

A recent article in WalesOnline is one of many that have covered research being done at the UK’s Swansea University in cooperation with Corus (now Tata) Steel, photovoltaic (PV) specialists Dyesol and others into the possibility of coating steel sheets at the point of manufacture with materials that will generate electricity essentially making the steel panel or better still the whole roof structure one huge photovoltaic cell.

Source: Tata Steel

The   photo shows Prof. David Worsley from Swansea University studying a sample of functionally coated strip steel using an illuminated magnifying lens.

The article explains the process as spraying a solar cell onto the steel surface and of course holds open the possibility of powering the building itself and the sale of surplus power into the national grid. Government is backing the idea in the form of a £9.5m ($15m) grant from the Engineering and Physical Sciences Research Council for further research and Corus (Tata Steel Europe) is the lead industrial partner working with the University in developing the concept.

The technology sounds almost too good to be true so we caught up with Robert Dangerfield, Communications Manager at Tata Steel in Wales to find out a little more detail. Robert confirmed the project is ongoing but research into PV surfaces is only part of a wider program called SPECIFIC that is looking at various coating technologies with a view to bringing them to commercial reality. The project is looking at various ways in which PV coatings can be applied, used and interact with both the sheet and the wall or roof insulation. SPECIFIC as a project is likely to run for at least 5 possibly 10 years but as the original article pointed out the PV roll coating technology is going into site trials at Tata’s R&D facility at Shotton where the firm intends to cover several hundred square feet of roof space to trial the technology. As Dangerfield explained, the PV sheets are not expected to be a direct replacement for conventional silicon based PV panels, rather they have a more modest in the region of 10% efficiency compared to 30+% efficiency for modern PV panels but because of their much lower cost can cover a far greater roof area generating electricity at lower cost and without the need to use unsightly panels attached to the roof surface.

Patents have been applied for so the partners are serious about bringing this to commercial reality. As to when industrial and agricultural buildings will be re-roofed with the new panels remains uncertain at this time but a comment by Dr David Wormsley, of Swansea University succinctly underlines the potential, “Corus Colours (Tata Steels Coating Division) produces around 100 million square meters of steel building cladding a year. If this was treated with the photovoltaic material, and assuming a conservative 5% energy conversion rate, then we could be looking at generating 4,500 gigawatts of electricity through the solar cells annually. That’s the equivalent output of roughly 50 wind farms.” and not a windmill in sight!

–Stuart Burns

In the 80-90’s it was Japan that was synonymous with shipbuilding. In the 90-00’s it was South Korea. This decade marks the coming of China as the world’s shipbuilder. True as single entities go Hyundai Heavy Industries and Samsung Heavy hold the number one and two positions in the world according to a FT article last week, but snapping at their heals a report on the Chinese Shipbuilding Industry says is China State Shipbuilding Corporation (CSSC). CSSC may be number one in China but that is number one among hundreds. The China Daily says in 2009, Chinese shipbuilders contracted new orders totaling 26 million dead-weight tons, a 61.6% share of global new vessel orders. While the People’s Daily reported that in just the first half of 2010 China’s shipyards completed and exported 24.3 million dead-weight tons, exports accounted for 82% of the total shipbuilding capacity, and the volume of new overseas orders reached about 16.4 million dead-weight tons, accounting for 69% of the total volume of new orders. The China Daily is still ranking China’s shipbuilding industry as second to South Korea but the FT says the Chinese shipbuilding industry became the world’s biggest in the first half of 2010 by all three key measures: new build contracting, delivery, and the size of the overall order book. In terms of global share, the first half of 2010 saw China’s shipbuilding capacity, the number of new orders and the volume of backlog orders account for about 41%, 46% and 38% of the world market, respectively. China has the same advantages Japan and Korea enjoyed in the past: low labor costs, steel supply and an abundance of coastal land. The difference is that Beijing is willing to bear almost unlimited losses in pursuit of dominance in what it sees as a strategic value add business.

This drive for dominance comes just as new orders among the world’s shipbuilders drops as the chart shows. Orders placed prior to the crisis will keep yards busy for a couple of years yet but for the industry as a whole, 2009 was the best for aggregate completions, some 390, but the worst for new orders, just 49. As business becomes more and more competitive, China will ensure it remains the most competitive supplier, as it has in so many other industries. Shipbuilding is the epitome of China’s drive to take a polluting energy intensive product like steel and add value before export, shipbuilding will get all the helps it needs to stay in front.

What this has already meant is that South Korea and Japan have moved up the value chain already dominant in more specialized vessels like LNG they may well start to impinge on Europe’s dominance of ocean liners, the last bastion of western commercial shipbuilding.

In spite of China’s success so far, Zhang Changtao, chief researcher of the Economic Research Center of China Shipbuilding admits the country still faces challenges, such as weak independent research and development capacity, high dependency on imports of shipboard equipment, low production efficiency and what he terms defective industrial structure, by which we understand a fragmented industry over ripe for consolidation and optimization. China will likely be dependent for some time on imported shipboard equipment as ship-owners specify tried and trusted systems such as navigation and engines but the Chinese have found ways around this in industries like high speed trains. To gain access to a growing domestic market, the country will require foreign manufacturers to establish manufacturing operations within China sharing technology and building a domestic supply chain. Gradually this will develop into domestic supply of more and more complex shipboard systems western branded as but made in China. Moveover Asia, China Shipbuilding is on the rise.

–Stuart Burns

A big story in the rare earth metals world hit the press yesterday as US Rare Earth announced a contract with Boeing to employ some of their technology which, when fully implemented, could scan wide areas from airplanes or satellites and identify rare earth elements or other substances based upon their spectral fingerprints, according to TechNewsDaily. The story highlights the level of importance companies like Boeing have placed on rare earth metals and the lack of operating US rare earth metal supply chains.

Boeing has specifically examined the samples from deposits of US Rare Earth’s (USRE) Lemhi Pass in their laboratory and has   identified high concentrations of individual rare earth elements. The laboratory tests are now being taken to the next step in the process as Boeing has been contracted by USRE to complete the “ground truthing of the claims in the field.

MetalMiner caught up with US Rare Earths CEO Ed Cowle yesterday and asked him to comment on the significance of Boeing’s findings on his properties. “We are very anxious to have Boeing scan our new (not previously announced) North Fork property,” Cowle said. “Our geologists believe that we have large quantities of neodymium which are used in a variety of key applications including hybrid cars, wind turbines and aircraft.

We wanted to better understand Boeing’s motivations and had a chance to put a few questions in front of Patrick Kennedy, public relations coordinator for US Rare Earths:

MM: Does Boeing intend to commercialize their technology or have they deployed it for their own internal use? Will they license it to others?

US Rare Earths: Our understanding is that Boeing does intend to commercialize this (formerly, military/government) technology.  We have no knowledge of internal use in our space. However, they have indicated that they have no interest in entering the rare earth mining or exploration business.

We do not have any sort of exclusive license and it is conceivable that once we have walked through the entire process that others could follow in our footsteps.

MM: How dependent is Boeing on the specific rare earth metals owned by  US Rare Earths?

US Rare Earths: They would have this information, however they have not discussed specifics of their usage with us except to say that it was significant  and that 15-plus years of forward planning is not unusual for them.

MM: Was their intention to do some sort of lock-up or off take  agreement or make an investment in US Rare Earths?

US Rare Earths: This was not a topic of discussion.  Boeing has capabilities that would include purchasing or negotiating directly from nearly any country. They are concerned, as most citizens are, that a domestic supply base is available and that the US  manufactures stay healthy and in business.

MM: What are the next steps for US Rare Earths?

US Rare Earths: USRE is going to continue to stake and file claims in our area of interest and are currently talking to potential strategic partners, interested financial entities and possible buyers. We do not have any immediate plans to go public.

We will continue to keep MetalMiner readers updated on the latest happenings within the rare earth metal field.

–Lisa Reisman

Besides confirming a stainless steel and nickel market outlook recently reported by my colleague Stuart, panelists at the ISRI Commodity Round Table conference last week in Chicago covered several additional trends that we have not previously reported nor have we seen in various metals publications. One observation made by panelist Michael Wright, ELG Haniel GMBH and also President of the British Metals Recycling Association, which we have now heard twice at two separate events, involves the notion of “exchangeability of metal units. In other words, according to Wright, “consumers no longer want to buy stainless steel, they want to buy Ëœmetal units’ with specified levels of various alloying elements such as nickel, molybdenum and iron. We heard a similar comment regarding buying “iron making units, which we will return to in a follow-up post. The purchase of these Ëœmetal units’ places additional responsibility onto the supplier according to Wright, because consumers dictate the actual chemical composition of the particular stainless they intend to purchase. For example, a customer may dictate chrome at 16-17% max. Producers often find it challenging to hit the customer’s targets.

A second trend impacting stainless steel supply chains involves residual levels within the scrap supply chain. An inherent conflict exists between what scrap dealers and suppliers want to deliver to producers (smelters) and what those producers want to receive. Essentially the producers want residual levels held as low as possible (as stated by Missy Bilz of North American Stainless) whereas scrap suppliers would like to see residual levels raised. Also related to residuals, another question examined which types of stainless applications could best tolerate higher residuals. Wright pointed out that kitchenware and cutlery could withstand higher coppers (though he added that makes it a nightmare for recycling) but some industry specifications for say oil and gas would take too long to change and therefore would not be a good candidate for evaluating residual levels.

Another big point of discussion involved the addition of a new flat roll mill coming on stream later this year (ThyssenKrupp). Currently, the US has three major flat roll mills. An audience member wanted to know how the addition of ThyssenKrupp would impact the availability of scrap.  The panelists agreed that a fourth mill would change all of the dynamics of buying scrap in the US. The US will need to consume that material here (vs. export it). That discussion evolved into questions about stainless steel over-capacity within the US market. Another audience member wanted to know whether M&A consolidation would take some of the over-capacity offline or would existing producers need to shut down capacity. Panelists suggested that Thyssen had already started to undercut the market, though their pricing appears less severe on the steel side (vs. the stainless side). Speaker Chris Olin of Cleveland Research Company, a firm that provides sell side research for carbon, stainless and high performance materials, said, “There is a pretty big need to rationalize supply. When asked whether or not the market could expect further consolidation in the stainless sector, panelist Michael Wright answered, “No, the greatest growth rate for stainless production will occur in China. The growth rate is there. In China, there is little opportunity to join up with a Chinese company or a scrap operation. It is proving very difficult. I don’t see any consolidations in recycling perhaps some activity around merging grades.

Panelists also shared a few statistics that we thought MetalMiner readers might find of interest:

  1. The number of times a ton of nickel turns on the LME for stainless production (25x)!
  2. Stainless has the highest recycle rate of any metal (over 80%)
  3. Between 2008 and 2013 As a percentage of total world stainless production, Asia’s share will grow from 55% to 68%. However, scrap generation will run well behind demand. China will generate only 25-30% of its requirement. It’s too expensive for China and that’s why they are going into nickel pig iron.

–Lisa Reisman

Not a rare earth metal, but certainly one to watch, lithium gets its day in the limelight as Global X Lithium, an ETF, will launch later this week. Global X Lithium will track lithium producers and battery makers. The idea for the fund came from R. Marcelo Claure, a Bolivian businessman and founder of Brightstar Corp a $3 billion distributor of hand-held devices, according to the WSJ. Bolivia contains the largest deposits of lithium, so it’s no surprise that the idea for the fund came from that country. Claure, an investor in MC Capital Advisors, a hedge fund, approached Global X Management to start the ETF.

Back in May, MetalMiner reported on the first rare earth metal ETF fund that makes actual investments in firms that produce REEs. The Global X Lithium fund works more like a traditional ETF fund in that the fund will track an index comprised of key lithium producers and battery makers (and their stock prices). The WSJ suggests other rare earth metal ETFs are on the way, including one for gallium and another for selenium.

What we find particularly interesting while watching the development of these funds involves the rationale behind the funds. We understand those rationales to include:

  1. General demand for ETFs according to the Wall Street Journal, “there were 914 listed ETF’s at the end of June up 21% from a year ago¦.Since 2007, ETF’s have raked in $480 b in net cash inflows, bringing total assets to $780b.”
  2. Trend in partnering amongst companies interested in creating markets for “obscure materials for which there is rising demand
  3. Creating physical inventories via financially traded products to supply a growing market
  4. And as a result of three above, the creation of the unintended (or intended) consequence of seeing the price for some of these rare earth metals increase (which will result in more attractive mining economics) which is a good thing if you believe the demand for these metals will increase over time

That fourth point is something my colleague wrote about earlier this morning. And as a result of all four trends listed above, we suspect the number of ETFs in the rare earth metals, minor and related metals markets will continue to grow. What we will monitor from the sidelines, however, like other ETFs, include the number of new funds set up as an index to track underlying producers vs. ETFs that actually invest in physical inventories. Not to minimize the former, but they merely require capital. The latter actually move markets and that’s why any watcher of rare earth metals might wish to play close attention to what has happened with the PGM group of ETFs (which do invest in the underlying metal) and the previously announced aluminum ETF (which will take on physical inventory of that underlying metal) set to become operational later this year.

–Lisa Reisman

In the last six to eight weeks, I have heard numerous rumblings about an anti-trust case brought against eight US steel producers (ArcelorMittal; ArcelorMittal USA, United States Steel Corporation; Nucor Corporation; Gerdau Ameristeel Corporation; Steel Dynamics, Inc.; AK Steel Holding Corporation; Ssab Swedish Steel Corporation; Commercial Metals, Inc.) The case, Standard Iron Works vs. ArcelorMittal et al., though not a “newsworthy event from a timing perspective (the case remains in discovery), does raise plenty of interesting issues from a strategic sourcing and steel pricing perspective. We spoke to a few attorneys (some on and some off the record) who shared with us some background and insight on antitrust cases in general and this one impacting the steel industry in particular.

First a little background on the case. We should point out this case is a class action lawsuit with a named plaintiff, Standard Iron Works. According to the complaint, Standard Iron Works “purchased steel products directly from Defendants between January 1, 2005 and the present, a multi-year antitrust conspiracy amongst Defendant domestic steel producers to reduce the production of steel products in the United States in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.Specifically, Plaintiffs collectively allege that on at least three occasions during the class period”mid-2005, late-2006, and mid-2007 ”each Defendant implemented coordinated production cuts for the express purpose of raising the price of steel products.

Antitrust allegations in the steel industry go back to the turn of the last century (if not earlier). In fact, US steel producers have often found themselves embroiled in antitrust litigation going back to 1911 when an antitrust case was brought against US Steel. However, we’d argue that many factors have changed in regard to global steel markets (and now more than ever, we need to include the global element to provide context for antitrust claims against US producers). According to the complaint, “A successful claim under Section 1 of the Sherman Act requires proof of three elements: (1) a contract, combination, or conspiracy; (2) a resultant unreasonable restraint on trade in the relevant market; and (3) an accompanying injury.” The complaint has proceeded to the discovery phase. One interesting note involves the Judge hearing the case, Judge Zagel (who will also preside over the Governor Blagojevich case) has published a book and appeared in two movies, “¦was appointed to the federal bench in 1987 by President Ronald Reagan, and while his law enforcement background has given him a reputation for leaning toward the government’s view, he is widely viewed by members of the defense bar as predictable and fair, according to this blog post from the Chicago Tribune.

So what makes this case interesting? We believe two key issues provide context and color. We’ll describe both of them here and then in a follow-up post review the case made by the plaintiffs as well as review some of the case law history. The two primary issues relate to: the markedly changed structure of the US steel industry (from many/most producers operating un-profitably, often below the marginal cost of production) to greater industry concentration and hence a fundamental shift from poor industry economics to a healthier set of economics and the role of imports in setting domestic steel prices and how those imports affected the market during the period in dispute. Other factors that we will examine include historic demand (during the time in question), the resulting economic collapse in 2008 that severely impacted the steel industry and the speed in which mills can increase/shut down capacity. We’ll also weigh the merits of the plaintiff’s case and what impact this decision could have from a buying organization’s perspective.

MetalMiner would like to thank Don Hibner an anti-trust expert with the law firm, Sheppard, Mullin, Richter  & Hampton. Mr. Hibner is a member of the California State Bar, and the Bar of the United States Supreme Court, and has represented clients in federal and state antitrust proceedings for over 40 years.

–Lisa Reisman

Rare earth metals are the new black in mining circles — everywhere you turn, whether it is a mining conference or a trade journal, the focus is on finding and developing new sources of supply to counter the perceived threat posed by Chinese dominance of the supply market. In reality, rare earths (RE) are anything but rare in the words of Dr. Roger Paul, general manager of business development at South Africa’s center of excellence in mineral and metallurgical technologies, Mintek. The elements are widely distributed in the earth’s crust, but often not in sufficient concentration to support commercial extraction. One resource that may be the case (and the reason for our conversation with Dr. Paul) is Montero’s Wigu Hill deposit in Tanzania, covered by Mineweb in an article this week.

Apparently Wigu Hill has a lot going for it, both geologically and geographically. Geologically, because the deposit is carbonatite in form with no associated radioactive materials present such as uranium or thorium, and while it potentially adds a revenue stream, it also greatly complicates the handling, concentrating and refining processes. Concentration is another facet of the geological advantages in Wigu’s favor. In places, concentration goes as high as 25 percent, but is likely to average 7 to 10 percent, according to the article. The other advantage is Tanzania’s geographic proximity to world-class mining, processing and refining expertise in neighboring South Africa. Dr. Paul explained that twenty years ago South Africa developed an effective extraction process to refine RE salts from Gypsum tailings, but the commercial exploitation was dropped for want of scale. The project required a minimum of 2,000 tons of feedstock per year and the resource was of too low a grade to achieve that. New interest has now developed on higher grade deposits and technically, facilities could be developed in conjunction with Wigu Hill.

In reality, though, Dr. Paul believes refining capability will either be developed in North America or Europe or both to meet growing demand for rare earth metals from the host of emerging green technologies. Intriguingly, Dr. Paul mentioned the capabilities of French chemicals company Rhône-Poulenc in the refining of these elements. Apparently back in the 1990s prior to the dominance of China’s Bayan Obo mine and development of China’s numerous associated refining ventures, Rhone-Poulenc was refining rare earth metals. The firm subsequently spun the refining operation off into a separate company called Rhodia Rare Earths which today has facilities in France, the US and Japan. We tried contacting the company to ask if their facilities were still in full operation and to better understand their ability to meet western demand in the event that new ore bodies were exploited. Unfortunately, nobody from the company was able or willing to be interviewed, so their capability remains uncertain. Certainly expansion or refurbishment of such facilities should be more economical than developing new refining capabilities. More important, the firm should still have the technical expertise that appears in such short supply outside of China.

–Stuart Burns

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